The recent falls in the pound are expected to boost export sales this year, the Irish Trade Board said yesterday, as the currency rallied slightly against sterling and the deutschmark on the back of rumours that its central ERM rate would be revalued this weekend.
However, informed sources strongly played down the rumours last night. With no move to revalue the currency's ERM central rate thought to be imminent, the currency is likely to come under renewed heavy selling pressure when the markets reopen on Monday.
The trade board chairman, Mr Sean Murray, said that recent currency shifts would result in an easing of pricing pressures for Irish companies selling into Europe. It augured well for our performance in Europe during 1998, he added.
Mr Murray said Irish exporters had experienced difficulties in the European market last year because of adverse exchange rates and a flat European economy.
Although good news for exporters, the weak pound will push up retail prices, the Dublin Chamber of Commerce has warned. The chamber's economic director, Mr Declan Martin, said Irish companies would import about £10 billion of goods from Britain this year and that many invoices would have to be paid for at £1.20, compared to rates of £1.05 in December. "This will inevitably lead to higher retail prices, certainly in the short term," he said.
Mr Murray also warned that sterling strength was unlikely to be sustained indefinitely both in terms of Britain's own interest in restoring a more competitive exchange rate and the anticipated slowdown in the British economy during 1998.
On the markets, the pound closed at 84.9p against sterling in late trade from 84.53p and at DM2.4940 from DM2.4812. Analysts now say that the Minister for Finance, Mr McCreevy, is fast running out of time to affect the rate at which we will enter the euro.
However, an early revaluation move is seen as unlikely as the market has now driven the pound down to only 2 per cent above its central rate. In any case, Mr McCreevy has been on a family holiday for the past week and is not due back until Sunday, making it more difficult for him to co-ordinate any announcement.
Increasing talk of a global disinflationary environment where many currencies could devalue from present levels is also thought to have made the authorities nervous of a revaluation.
However, Mr Dermot O'Brien, chief economist at NCB Stockbrokers, said he believes that there is a better than even chance of a revaluation announcement being made this weekend.
"Given the scale of decline in the currency, the authorities must be extremely concerned and must realise that if something is not done, the game will be taken away from them," he said.
However, others are less sure. Mr Jim O'Leary, chief economist at Davy Stockbrokers, said there may be a risk of a revaluation this weekend, but that there was little point in a small revaluation of the pound's central rate.
He added that the currency was likely to fall another four pfennigs in coming weeks if there is no announcement. However, there would be some residual uncertainty so the pound might stay slightly above DM2.435, he said.
Mr Jim Power, chief economist at Bank of Ireland, said he felt that a revaluation was not on the cards, nor should it be.
"From a long-term competitiveness point of view, the lower the rate the better," he said. "Sterling could be significantly lower in 12 or 24 months than it is today, so entering at our central rate of DM2.41 would provide a much safer cushion," he added.
Mr O'Brien said such a sharp fall in the pound risked significant inflation being imported into the economy. However, Mr Murray said these concerns could be alleviated through increased domestic sourcing, lower capital and interest costs and recent Government measures to reduce industry skill shortages.
